UNITED INDUSTRIES CORP - 10-Q Quarterly Report

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report contains forward-looking statements. These statements are subject to a number of risks and uncertainties, many of which are beyond our control. All statements other than statements of historical facts included in this Quarterly Report, including statements regarding our strategy, future operations or financial position, estimated revenues, projected costs, projections, plans and objectives of management, are forward-looking statements. As may be used in this Quarterly Report, the words “will,” “believe,” “plan,” “may,” “strategies,” “goals,” “anticipate,” “indicate,” “intend,” “estimate,” “expect,” “project” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain such identifying words. All forward-looking statements apply only as of the date they were disclosed and are based on our expectations at that time. We do not undertake any obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise. Although we believe that our plans, intentions and expectations reflected in or suggested by any forward-looking statements we make in this Quarterly Report are reasonable, we can give no assurance that such plans, intentions or expectations will be achieved.

Our actual results could differ significantly from the results discussed in any forward-looking statements contained in this Quarterly Report. Factors that could cause or contribute to such differences include, without limitation, the following:

· general economic and business conditions;

· the loss or bankruptcy of major customers, suppliers or parties with whom we have a strategic relationship;

· the loss of a significant amount of products purchased by major customers;

· weather conditions and/or historical seasonality;

· our ability to repay our indebtedness or meet other obligations;

· industry trends and competition;

· our ability to manage rapid growth and the integration of acquisitions;

· our ability to successfully implement our enterprise resource planning, or ERP, system;

· public perception regarding the safety of our products;

· governmental regulations;

· terrorist attacks or acts of war;

· cost and availability of raw materials;

· changes in our business strategy or development plans;

· our ability to recruit and retain quality personnel;

· availability, terms and deployment of capital resources; and

· the other risks described in our filings with the SEC, including our Annual Report on Form 10-K.

TRADEMARKS

Spectracide^®, Spectracide Triazicide™, Spectracide Terminate^®, Hot Shot^®, Garden Safe™, Schultz^®, Rid-a-Bug^®, Bag-a-Bug^®, Real-Kill^®, No-Pest^®, Repel^®, Gro Best^®, Vigoro^®, Sta-Green^® and Bandini^® are our trademarks and trade names. We also license certain Cutter^® trademarks from Bayer A.G. and certain Peters^® and Peters Professional^® trademarks from The Scotts Company. Other trademarks and trade names used in this Quarterly Report are the property of their respective owners.

PART I. FINANCIAL INFORMATION
Item 1. Financial Statements

UNITED INDUSTRIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share data)
(Unaudited)

	September 30,						December 31,
	2003			2002			2002
ASSETS
Current assets:
Cash and cash equivalents	$	44,122		$	47,174			$	10,318
Accounts receivable, less reserves of $3,926 and $4,513 at September 30, 2003 and 2002, respectively, and $3,171 at December 31, 2002	56,464			56,112				23,321
Inventories	67,570			44,000				87,762
Prepaid expenses and other current assets	10,058			6,307				11,350
Total current assets	178,214			153,593				132,751
Equipment and leasehold improvements, net	34,360			27,785				34,218
Deferred tax asset	86,266			101,045				105,141
Goodwill and intangible assets, net	96,918			82,724				100,868
Other assets, net	10,243			12,815				13,025
Total assets	$	406,001		$	377,962			$	386,003
LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current liabilities:
Current maturities of long-term debt and capital lease obligation	$	1,341		$	9,530			$	9,665
Accounts payable	15,861			21,878				27,063
Accrued expenses	59,454			52,842				45,221
Total current liabilities	76,656			84,250				81,949
Long-term debt, net of current maturities	388,096			371,230				391,493
Capital lease obligation, net of current maturities	3,333			3,892				3,778
Other liabilities	3,199			4,644				5,019
Total liabilities	471,284			464,016				482,239
Commitments and contingencies
Stockholders’ deficit:
Preferred stock (37,600 shares of $0.01 par value Class A issued and outstanding, 40,000 shares authorized)	—			—				—
Common stock (33.2 million shares each of $0.01 par value Class A and Class B issued and outstanding, 43.6 million shares of each authorized at September 30, 2003; 33.1 million shares of each issued and outstanding and 37.6 million shares of each authorized at September 30, 2002; 33.1 million shares of each issued and outstanding and 43.6 million shares of each authorized at December 31, 2002)	665			664				664
Treasury stock	(96		)	—				—
Warrants and options	11,745			11,888				11,745
Additional paid-in capital	210,806			206,827				210,480
Accumulated deficit	(259,233		)	(273,622		)		(287,592		)
Common stock subscription receivable	(23,363		)	(26,071		)		(25,761		)
Common stock repurchase option	(2,636

Delaware		43-1025604
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)

	Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets as of September 30, 2003 and 2002 and December 31, 2002	4
Consolidated Statements of Operations and Comprehensive Income for the Three and Nine Months Ended September 30, 2003 and 2002	5
Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2003 and 2002	6
Notes to Consolidated Financial Statements	7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	28
Item 3. Quantitative and Qualitative Disclosures About Market Risk	45
Item 4. Controls and Procedures	47
PART II. OTHER INFORMATION
Item 1. Legal Proceedings	48
Item 6. Exhibits and Reports on Form 8-K	48
Signatures	49
Exhibit Index	50